Do You Have Employees or Independent Contractors

By Lane V. Erickson, Pocatello Business Lawyer

Whenever we help a client create a business, one of the first questions we usually talk with them about is whether they will have people working for them. In other words, we try to determine whether they will have employees or not. The reason for this question is that if our client’s business will have employees, this has an impact on many of the decisions that have to be made when it comes to structuring the business so that it can operate within the requirements of both federal and state law.

As the premier Pocatello business law firm, our goal at the Racine law office is to help you structure your business in a way that will meet all of your business needs and help you stay in compliance with all applicable laws. We have assisted clients for more than 70 years in setting up, structuring, and operating their business in a way that is both legal and profitable. To do this we use a team approach to help our clients with all the specialized areas of business law that are needed. Our team includes partners Lane Erickson and TJ Budge, and attorneys Nate Palmer and Dave Bagley. Our team of business attorneys have the experience, knowledge, and skill that you need to help you with all of your business needs.

You may be wondering how a person who operates a business may not know whether they have employees or not. However, you’d be surprised that this question comes up more often than you would think. The main way this comes up is when a business owner is working with someone they believe is an independent contractor but they find out through some legal proceeding that in fact this person was an employee instead.

If you have an employee, you are required to do many things that you are not required to do when you are working with independent contractors. This would include withholding both state and federal taxes, providing unemployment insurance, providing Workers Compensation Insurance, and other requirements as well. It’s for this reason that we provide this article to you. The purpose of this article is to help you determine whether in fact you are working with employees or independent contractors.

When it comes to making this determination, a specific Idaho case that came out in 2011 provides the guidance that you need. This case is Moore v. Moore, 152 Idaho 245, 251, 269 P.3d 802, (2011). From this case there were four specific factors that courts in Idaho use to determine whether a person is an employee or an independent contractor. This article analyzes these four factors.

The first factor that the Moore court considered was whether the business owner has the right to control the person who is doing the work. Specifically, the question from Moore has to do with whether the business owner has the ability to control the time, manner, and method of the work that is being done.

A business owner who requires a person to clock in and out and be on the job from 9 to 5 everyday, and provides a specific location for the work to be done, along with policies, procedure manuals, training, and other things that would help control both the manner and the method in which the work is being done has employees and not independent contractors working for them. However, if the business owner hires an individual to do a specific job and describes the job that needs to be done, but then leaves it up to the individual to determine when the work will be done and how it will be accomplished then the person doing the work looks more like an independent contractor than an employee.

Keep in mind however, that this is just one of four factors in the Moore case that have to be examined. The other factors also must be analyzed.

The next factor that the Moore court requires to be analyzed is determining how your business pays the individual who is doing the work. If payment is being made on a regular schedule, and it includes withholdings of both state and federal taxes, and potentially other withholdings as well, then the individual looks like an employee and not an independent contractor. However, even if you are using an hourly rate, if payment is being made based on the accomplishment or completion of a specific job, and no withholdings are being made, then the individual looks more like an independent contractor.

The next area the Moore court requires to be analyzed is who furnishes the equipment necessary to complete the job. Consider this example: You are building a new home. If you hire a plumber, or an electrician, to come complete that work on your home, it’s most likely that they’re going to be bringing in and using their own specialized tools and equipment to complete the job. In this instance, the plumber and the electrician are independent contractors. However, if you are providing the tools, or computer, or the equipment, or the furniture necessary to do a specific job, it’s most likely that the person you’re working with is your employee and not an independent contractor.

The last factor that is analyzed based on the Moore court is how the relationship can be terminated. If a person is an employee, they usually can be terminated at will which means they can be terminated at any time for any reason or no reason so long as it is not an illegal reason. It also means that they can quit the job at any time as well. Both of these mean that there is no liability from one party to the other if the relationship terminates no matter why the termination occurs.

However, if someone is actually working as an independent contractor, this means that there is some sort of a contract that exists. In this event, neither the independent contractor, nor the business owner can terminate the relationship at will unless there is a term or condition in the written contract that allows this to be done. If there is not, and a termination occurs, then the party who is terminated has a right to bring a breach-of-contract claim against the other party.

In most instances people believe that simply what you call the individual controls whether they are an employee or an independent contractor. However, you must always keep in mind the fact that it doesn’t really matter whether you call the individual an employee or not. Rather, what matters is how the factors that are listed in the Moore case apply to your situation.

If you have any concerns or questions about how you have your business structured with the people that are working for you and whether or not they are independent contractors or employees, we can help. We have the skill, and experience in helping numerous business owners work through this and other issues to help their businesses be successful. We are confident that we can help you too!

Our team of Pocatello business lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Pocatello business problems.